Thank you for the opportunity to consult on your Shouldice Hospital operational assessment. I understand that you have implemented a well developed focus strategy (market focus and internal focus) successfully and Shouldice achieves outstanding results by maximizing the difference between perceived quality and value to the patient on one hand and the cost of supplying services on the other.
The nurses and doctors treat their patients with care and understanding and treat them more like family members. This has led to the high level of praise for this hospital and its treatment. The rising number of satisfied patients and word of mouth referral has led to demand for the facilities services which outstrip the facility’s current capacity. I understand that you are looking for guidance on specific actions in order to increase the hospital’s capacity while at the same time maintaining control over the quality of the service delivered, and the hospital management.
I have identified the problems and offered a list of alternate courses of action. Problem Definition: The problem is that Shouldice is facing a paradox of change. Shouldice is operating at its “best operating level” for a service company with limited flexibility in its facility, a specialized work force but are failing to meet all the demand for its chosen market niche. Adding additional capacity to meet the unmet market need may upset the existing work force and lower service quality. Failing to meet the market demand may invite competition that could eventually cause Shouldice to lose market share and end up with excess capacity.
Problem Justification: It is assumed that they are operating at the “best operating level” because the way the case describes how efficiently the hospital is ran and how the patients appear to be pleased with their treatment. Capacity is nearly 100% full if they do 30 operations a day and the patients stay 3-4 days. This would fill up 89 beds for a 5 day work week. They also have 15% (14 hostel rooms) additional capacity for peak times. This also works out to be about 70% capacity of their full time potential of 7 days. 70% of maximum capacity is the best operating point.
To increase it rate of service utilization will decrease the service quality. To increase their output and maintain their quality they would need to increase the size of the hospital. This involves large capital investments and considerable time. Construction would also cause a disruption to the quality and country club atmosphere of the hospital. Due to shift restrictions the current operating rooms are completely un-utilized for 2 days of the week as well as 15. 5 hours of each weekday.
Kitchen and common area are designed to accommodate one hundred patients and it is important that these facilities be kept up to ensure patients still receive the high level of satisfaction with the experience at Shouldice. The staff also has limited flexibility. Surgeons and surgeons’ assistants are specialized fields that have limited desire to be cross trained. It is assumed that the staff is happy with the existing work schedule and do not want a change. Increasing the days worked would cause more aggressive scheduling of the operating rooms and may make it hard to maintain the same kind of working relationships and attitudes.
Alternative Courses of Action
Alternative courses of action are based on the assumption that the reason for their desired expansion is to meet an unmet market demand.
- They could add an additional day by operating on Saturday.
- They could do nothing different and continue to do as they are currently doing.
- They can add a new floor (i. e. 45 i. e. 50% more hospital beds).
- They can meet the unmet market demand with external capacity (establish a new facility).
- They can utilize the current facilities during some of its present idle time.
Evaluate alternatives and make decisions: Adding an additional operating day on Saturday is a valid consideration. It would utilize ideal hospital capacity. It could increase the number of patients served by 9% or 800 patient a year. Would this be a sufficient number of patients served to keep competition from entering the same market is unknown. Adding a Saturday is also assumed to have a negative impact on the work force that drive down the quality that gives Shouldice a competitive advantage. It would increase rate of service utilization beyond 70%. This could be offset by hiring addition staff.
But one should consider the time it takes the new staff to come up the efficiency curve. Doing nothing is a valid consideration. Their existing system and reputation sets them apart as a market leader and it is assumed to be a profitable setup. If it is working do not try to fix it. We assume that the existing set up is acceptable to management as far as profit and other operating measures. The assumed risk is if they do not do anything then competition will enter the market place and could eventually take patients away from Shouldice.
There is insufficient data presented to truly analyze this risk. Increasing the number of bed by 50% would not be advisable unless they added more doctors and surgery rooms because the existing plant capacity and number of doctors could not fill an addition 45 beds. They would be operating the surgery rooms at over capacity. The construction requires large capital investment, time, and would disrupt the country club atmosphere. Meeting the unmet market demand with external demand is a valid consideration. It could be done in several different ways.
They could look to other facilities that are similar and team with their doctors to train them in the Shouldice processes and share in the profits. This would help keep the competition out of the market and could be done as a silent partner until the service quality reaches a level that Shouldice would want to associate their name with the other facility. Another option would be to establish a new facility for Hernia. Another option would be to subcontract or franchise the operation. Relieve the operating room bottleneck by utilizing the current facilities during some of its present idle time.
Addition of weekend or evening surgeries will increase throughput without any capital investment. Expand the facility’s kitchen and social area’s to accommodate the increased patient throughput and continue to provide a high quality patient experience for its customers Recommendations: I would recommend a combination of doing nothing with the existing staff and plant as to maintain the country club atmosphere and gregarious nursing staff that gives it its competitive advantage and meet the unmet market demand with external sources of capacity to keep the competition from entering the market. I would be happy to elaborate on my recommendations in future correspondence.
Merits of establishing a new facility:
- New location close to current setup, say a major city (New York) in USA
- Improve its competitive position and increase its profits
- Operate in a less restrictive environment
- New Opportunities for existing personnel
- Transfer of knowledge and expertise to the new facility.
Demerits of establishing a new facility:
- Requires a significant investment and time
- Difficult to maintain Quality control
- Difficult to create the same culture and atmosphere
- Potential competition with the existing facility